Michigan Court of Appeals holds that Land Contract Purchase Triggers Replacement Coverage

The Michigan Court of Appeals, in Batton-Jajuga v Farm Bureau General Insurance Company of Michigan, held that where a property destroyed by fire was replaced through an insured’s purchase of property pursuant to a land contract, the land contract was sufficient to trigger the insured’s replacement coverage.

In that case, the insured’s policy included two types of coverage for the property: indemnification coverage up to the depreciated value and then coverage for the actual repair or replacement of the property over and above its depreciated value.  The repair or replacement coverage could not be triggered until the repair or replacement was complete.

After the destruction of the property by fire, Farm Bureau paid the depreciated value, but refused to provide coverage for the replacement on grounds that a purchase through land contract would not be “completed” until all payments were made pursuant to the contract and the deed was transferred.  The insured sued for breach of contract, and on summary disposition, the trial court agreed and entered judgment for the insured.

On appeal, Farm Bureau argued that a land contract is a lesser kind of ownership – something like a lease-to-buy arrangement, and because the insured acquired only equitable title – not legal title – it did not qualify as replacement.  The Court of Appeals disagreed, applying Michigan Supreme Court precedent which held that the purchaser in a land contract “has, in a real sense, purchased the relevant property.”  The Court then affirmed the ruling of the trial court and held for the insured.

Although this case was decided based upon the policy language, which may differ from case to case, the Court noted that the provision in this instance was boilerplate.  Accordingly, this decision may lead to changes in standard policy language in Michigan.  Additionally, this case represents a broadening of options for property owners who have lost property to fire or other disaster.

The opinion can be found here:

http://publicdocs.courts.mi.gov/OPINIONS/FINAL/COA/20171221_C334130_40_334130.OPN.PDF

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